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For a moment, it was like old times. Last week began with a “merger Monday”: 10 deals, totalling $27bn, including Oracle’s purchase of Sun Microsystems, GlaxoSmithKline’s takeover of Stiefel Laboratories, and PepsiCo’s bid for its two biggest bottlers. Subsequent days seemed promising, too, with rumours of a bid by Diageo for two-thirds of Moët Hennessy and Fiat signalling interest not just in Chrysler but in General Motors’ European operations.

Sadly, a few rosy headlines can mislead. Thomson Reuters’ tracking figures suggest that last week was, in fact, nothing special in terms of global mergers and acquisitions values and volumes. Though the week beginning March 29 was one of the strongest since September, activity subsequently dropped below the average for the first quarter of 2009. And M&A values in January-March were already down a third, year on year, to the lowest since 2004.

Buyers who are unconvinced stability has returned to equity markets fear making an acquisition that subsequently appears way overvalued. Most see the recent equity rebound as a classic bear market rally. And, while getting debt financing for deals is a touch easier than it was a few months ago, it remains tough for all except solid investment-grade names with a compelling rationale. Sellers, meanwhile, wistfully compare multiples today with a year ago, reluctant to part with assets unless they absolutely have to.

M&A is set to remain subdued except in two areas. One is sectors where valuations and cash flows look reasonably solid – notably pharmaceuticals, plus consumer goods and, possibly, resources. The other is in distressed assets, including financial services. In the hardest hit sectors, such as cars, potentially transformational deals may emerge for little outlay, partially financed by the state – as Fiat hopes to do. But, as certain banks have discovered, just because assets are cheap and come with government “encouragement”, that does not make them less risky.

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